COMMISSIONER OF INCOME TAX PUNJAB JAMMU AND KASHMIR AND HIMACHAL PRADESH PATIALA Vs. S RAGHUBIR SINGH TRUST

JUDGEMENT

(1.) The short question which arises for determination in this appeal by certificate is whether the reassessment sought to be made by the Income-tax Officer on the assessee trust under Section 34 (1) (b) of the Indian Income-tax Act, 1922 was time barred.

(2.) The assessee trust was created by one Shri S. Raghubir Singh and for the assessment year 1954-55 for which the relevant account year was the financial year ending on 31st March, 1954, the assessee trust filed a return of income on 31st March, 1954. The Income-tax Officer took the view that the assessee trust was sham and bogus and was created merely as a device for evasion of tax and he, therefore, refused to recognise the assessee trust as valid and made an order stating that the income accruing to the assessee trust should be assessed in the books of S. Raghubir Singh. The income of the assessee trust was accordingly included in the individual assessment of S. Raghubir Singh and assessment was made on him on that basis. S. Raghubir Singh carried the matter higher in appeal and ultimately the Punjab High Court on a reference made by the Tribunal held that the assessee trust was a valid trust and that the income which was sought to be included in the individual assessment of S. Raghubir Singh was the income of the assessee trust and not that of S. Raghubir Singh. In view of this finding given by the Punjab High Court, the Income-tax Officer issued a notice under Section 34 (1) (b) to the assessee trust on 19th September, 1961 seeking to reopen the assessment of the assessee trust. The assessee trust contended that the notice seeking to reopen the assessment was barred by limitation and the Income-tax Officer was not entitled to reassess the income of the assessee-trust. This contention was negatived by the Income-tax Officer who proceeded to make an order of reassessment bringing the entire income of the assessee trust to tax after allowing the usual deductions. The assessee trust preferred an appeal to the Appellate Assistant Commissioner but the appeal was unsuccessful and the matter was carried in further appeal to the Tribunal. The Tribunal proceeded to decide the appeal after obtaining a remand report and held that the assessee trust was a stranger to the proceeding for assessment of S. Raghubir Singh and the second proviso to Section 34 (3) did not save the reassessment proceedings against the assessee trust from the bar of limitation. The Revenue being aggrieved by this decision of the Tribunal made an application for a refeence and on the application, the following question of law, namely :-

(3.) It is now well settled as a result of the decision of this Court in Income-tax Officer A-Ward, Sitapur v. Murlidhar Bhagwan Das, (1964) 52 ITR 335 that two conditions are necessary for the applicability of the second proviso to S. 34 (3). The first is that the reassessment which is sought to be made must be "in consequence of or to give effect to any finding or direction" contained in an order made under Sections 33, 33A, 33B, 66 or 66A and the other is that the reassessment must be sought to be made on the assessee or 'any person'. The expression 'finding' in this provision means a finding necessary for giving relief in respect of the assessment for the year in question and, therefore, no decision can be said to be a finding within the meaning of this provision unless it can be said of it that it was necessary for the disposal of the appeal or proceeding. Now here there is no doubt that in order to decide that the income did not belong to S. Raghubir Singh, it was necessary to decide whether the income belonged to the assessee trust. The income was claimed by the Revenue to belong to S. Raghubir Singh on the ground that the assessee trust was invalid and, therefore, it followed as a necessary corollary that if the assessee trust was not invalid, the income would belong to the assessee trust and not to S. Raghubir Singh. The finding given by the Punjab High Court that the income belonged to the assessee trust and not to S. Raghubir Singh was, therefore, a finding necessary for disposing of the reference in favour of S. Raghubir Singh and it was clearly a 'finding' within the meaning of the second proviso to Section 34 (3).